In clash of cultures, PUC grapples with brave new tech world [Pittsburgh Post-Gazette :: ]

(Pittsburgh Post-Gazette (PA) Via Acquire Media NewsEdge) Aug. 24--A temporary cease-fire has been established in the battle between the Pennsylvania Public Utility Commission and two San Francisco ride-sharing companies trying to burn some rubber on Pittsburgh's roads. With the PUC's decision Thursday to grant Uber short-term approval to give customers rides -- Lyft got its permission slip a week earlier -- nobody's actively operating illegally at the moment.

But a full panel meeting by the PUC's five-member board this week will look further down the road, trying to figure out how to maneuver through the woefully outdated rules the state utility body is sworn to enforce.

"We need to dust off the transportation regulations because the commission recognizes some of the new technology, the new players entering the market, face barriers to entry," said PUC Chairman Robert Powelson. "Our transportation regs are based on 1950s regulations that allow a monopoly for cab companies and protections for the monopoly, or the incumbent."
The PUC was founded in 1937 and charged with -- among other regulatory duties -- maintaining reasonable rates, and safe and adequate service among the state's utility companies. The massive agency has about 450 employees who oversee some 8,000 entities across nine areas. Its board members are political appointees.

The new players Mr. Powelson referred to are the ride-share companies Lyft and Uber, which have brought a new transportation option to the Pittsburgh area, and at the same time raised issues unprecedented in the PUC's history.

The culture clash seemed inevitable: the PUC is a 70-year-old regulatory agency that evolved from overseeing streetcars and telegraph companies, and Lyft and Uber pride themselves on disruption and speed. The drama playing out in Pittsburgh is a replay of what's been happening in communities around the world where the ride-sharing companies have landed.

Lyft and Uber's services, which match drivers in their own vehicles to passengers via smartphone apps, were met with staunch resistance from taxi companies when they arrived here this winter.

Pittsburgh Transportation Group and Star Transportation Group, the largest taxi owners in the Pittsburgh area, went so far as to propose an ordinance to Mayor Bill Peduto that would have allowed city police officers to cite "vehicles operating like taxicabs or limousines, but not certified by the PUC."
Mr. Peduto, a vocal supporter of ride-share companies, declined to take up the ordinance, instead urging the PUC and the Legislature to figure out ways to enable Lyft and Uber to conduct business in Pittsburgh.

The taxi companies' response seemed to mirror the reception that Lyft and Uber usually receive whenever they move into a new area. And both ride-share companies seem to have a script they follow carefully, well-prepared for pushback over what they view as antiquated rules.

"Why do these rules exist?" Uber CEO Travis Kalanick said in conference call with reporters last week. "Our mission is simple: Transportation as reliable as running water, everywhere and for everyone."
The two companies have been successful in attracting high-profile investors and building businesses valued in the seven-to-eight figure range, even as they force regulators to re-examine their priorities.

At the heart of the traditional taxi companies' argument is the idea of a regulatory compact: A utility spends its resources on building infrastructure, such as fiber-optic cable or electrical lines, or investing in equipment, like windmills or taxis.

Regulatory agencies like the PUC require utilities to follow rules aimed at protecting the public from price gouging or poor service. In return, regulators prevent too many competitors from flooding a marketplace and undervaluing the utility's investment.

Mr. Powelson declined to speak about the pending ride-sharing cases, but all signs point to eventual regulation of some form or another if the ride shares want to keep operating.

There is little doubt that whatever those regulations look like, they will bear little resemblance to what is currently on the books.

For example, under current PUC code, taxis must file their annual log books with the commission, including information about total trips taken and how many vehicles each company has on the road. And taxi companies must have their rates approved by the PUC, in part to prevent price gouging.

According to the information Yellow Cab files with the PUC, it provides about 665,000 trips a year, traveling about 6.7 million miles. Its fare structure is a bit complex, based on 1/7 mile increments. The first one-seventh mile is $2.25, each one-seventh mile after that is 25 cents up to 20 miles, each one-seventh mile over 20 miles is 50 cents.

In contrast, Uber uses a practice that has raised many a regulatory eyebrow, known as surge pricing, which causes its algorithm to change prices based on immediate demand. A check of the Uber app for Downtown on Thursday afternoon, for instance, showed surge pricing in effect of twice the normal $5 minimum fare. In that case, the minimum was doubled to $10 -- a $4 base fare, plus 60 cents per minute or $2.50 per mile, plus a $1 safe ride fee.

Lyft has a similar version of on-demand pricing, which it calls Prime Time, but it also offers a discounted rate, called Happy Hour, when demand is much lower.

At its hearing in Pittsburgh last week, Uber declined to disclose the number of trips it provided in Pittsburgh while a cease-and-desist order was in effect, despite a court order requiring it to do so.

For a private software company, particularly one with Silicon Valley roots, the notion of revealing software or programming information is almost unheard of in a competitive environment. But regulators may consider that non-negotiable.

Even some established companies wonder if the role of regulators needs an overhaul.

Henry Posner, chairman of Green Tree-based transportation company Railroad Development Corp., has long questioned the need for regulatory agencies such as the Liquor Control Board and the PUC.

"The PUC always seems to be mentioned in terms of a barrier that needs to be crossed when innovation comes along, as opposed to an institution which has demonstrated the ability to keep Pennsylvanians safer," Mr. Posner said.

RDC is a railway investment and management company that focuses on emerging railroad markets. The company is familiar with regulatory battles; it won $14 million in damages and administrative costs in a 2012 case that found the Guatemalan government had violated free-trade agreements in its dealings with RDC.

The Philadelphia story
Among the items the Pennsylvania Public Utility Commission plans to examine at the en banc meeting bringing together all five members is the "geographic scope of authority."
State Sen. Wayne Fontana, D-Brookline, and Mayor Peduto both expressed support for the concept of local control over taxi and taxi-like companies -- rather than a state-level commission -- but whether an existing Pittsburgh agency could perform the task is not clear.

"Do we look at investigation and enforcement [of taxis] and put it under the parking authority?" Mr. Fontana said during a recent interview. "That's the most applicable entity that exists. It's worth a discussion."
Philadelphia may serve as a cautionary tale for local oversight of taxi companies.

Ten years ago, then-state Rep. John Perzel pushed for legislation to move oversight of Philadelphia's taxis from the PUC and put it under control of the Philadelphia Parking Authority. The goal was to improve what was seen as a broken system, after it was discovered four PUC taxi inspectors had taken bribes from taxi owners.

Taxi drivers in the City of Brotherly Love say that the fees charged to drivers have risen substantially since, with little measurable improvement.

"The PUC charged $50 for license every two years, but under the PPA, we pay $110 every year," said Ronald Blount, president of the Taxi Workers Alliance of Pennsylvania.

He has been driving a taxi for almost 20 years, and recalls the days of PUC oversight almost wistfully. "It should be uniform, throughout the state, sharing the cost with Pittsburgh and Harrisburg," Mr. Blount said of taxi oversight.

Allegheny County may not have the appropriate entity in place, he said. If the parking authority doesn't get the assignment, a separate entity would have to be created.

Mr. Fontana has proposed state legislation to create a new category of motor carrier -- the transportation network company. Senate Bill 1457 would require such companies to maintain detailed records, establish driver training programs, enforce a zero-tolerance policy on drug and alcohol use, and conduct background checks and driver guidelines.

Both the ride share companies and the PUC have expressed support for Mr. Fontana's legislation, which resembles regulation put into place elsewhere, such as Colorado, which earlier this year was the first state to pass legislation to legalize ride sharing.

"If I have to, I'll write it just for Allegheny County, get it done," Mr. Fontana said of the legislation. "It seems like the quickest, easiest way at this point to get something done.

"But that's not to say that at some point in the future, we might decide to do it differently, and look at empowering the city to oversee cabs. I don't think it would be difficult."
PUC challenges its own rules and regs
Mr. Powelson said earlier this summer, his office was flooded with hundreds of emails with concerns about service from Pittsburgh taxi companies.

He said without formal complaints to the agency, there was little the PUC could do. "But if it looks like a duck and quacks like a duck, it's a duck."
While the PUC kept all the emails as a matter of public record, the agency can't act on anecdotal information and needs the public to follow through when they encounter a problem, Mr Powelson said.

A check of the commission's records finds in the last three years, only a handful of formal complaints have been filed against Yellow Cab, the most recent being an enforcement action by the PUC itself in 2012.

One way of addressing the lack of formal complaints, Mr. Powelson suggested, is perhaps incorporating such things as annual quality assessments to gather information about gaps in coverage or trouble areas. But consumers' complaints are the best indications of the existence of a problem, he said.

He hopes that the taxi companies that have been invited to speak at the meeting this week will view it as an opportunity.

"It's the old Tyson Chicken model: either expand or expire," Mr. Powelson said. "Will their business model evolve? What would the answer be if we did a Gallup poll asking people, 'Are you satisfied with current transportation options in Allegheny County and Pittsburgh?' "
He sees evidence that the citizens are restless. "There's enough anecdotal information that people are not happy and that's what's allowed these disruptive forces to move into the market."
Another area that he thinks is ripe for overhaul is the current requirement that a new utility must demonstrate a "need" for its service in the marketplace before it can proceed. In the case of ride sharing, for instance, Lyft and Uber provided testimonials from Pittsburgh and Allegheny County residents who claimed poor taxi service and limited transportation options made the companies' service necessary.

"If you want to set up a new service in Allegheny County and an incumbent files a protest based on whether there is a need for the service, that can slow down the application process an average of 70 to 100 days," Mr. Powelson said.

"It's antiquated, and it's a way of starving out the competition and slowing down the process."
Mr. Posner agreed. "The demonstration of need is so difficult to define that is has the risk of becoming purely political issue, at least in issues of safety," he said. "To leave the question of need open to a regulatory body is subject to, at the very least, political interference and self-perpetuation. It's very hard to justify."
Mr. Posner is not optimistic about the PUC's ability to turn its gaze inward. "I would expect that the likely result [of the en banc meeting] will be some marginal change at the PUC that will provide just enough political cover to demonstrate that they do not need to be extinguished as an institution," he said.

"But as long as there is an LCB, there is likely to be a PUC as well."
Whatever the outcome of the hearing, Mr. Powelson said he thinks the Public Utility Commission recognizes it needs to innovate and refine its rules to better reflect the current state of the transportation industry.

"My hope is that this process will lead to better outcomes for transportation companies, and better transportation options for all the citizens of Pennsylvania."
Kim Lyons: 412-263-1241 or klyons@post-gazette.com. On Twitter: @SocialKimly.